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HMRC internal manual

Employment Income Manual

Particular benefits: loans written off: special rules

Section 188(1) ITEPA 2003

Sometimes a loan or part of a loan is released or written off. This means the borrower does not have to repay the lender. It is also sometimes referred to as a loan being waived.

If a charge does not arise under section 62 ITEPA 2003 a charge under section 188(1) ITEPA 2003 will arise on a director or employee, except for tax year 2015 to 2016 and earlier one in an excluded employment where:

  • part or all of any loan made to him (or a relative of his) is released or written off
  • the benefit of the loan was obtained by reason of his employment.

For this purpose, “relative” has the special meaning ascribed to it at EIM26112 and “by reason of the employment” that described at EIM26113.

The charge is subject to the exceptions in EIM21742.

The charge is made for the year the loan is released or written off. It applies whether or not the loan released or written off was a beneficial loan the benefit of which was chargeable on the employee under EIM26101 onwards.

It may also apply when the employment has terminated (see EIM21743 and EIM21744).

See EIM21745 where the loan was made by the trustees of a settlement of which a director or his spouse is a settlor and EIM21746 where a loan is released or written off by a close company.